Irish Property Market chat II - *read mod note post #1 before posting*

IWW2900

https://www.boards.ie/discussion/comment/119643363#Comment_119643363

The whole market is propped up by investors. They invest in property because it gives good yield. Prices go up because more money is available to more people. Because prices are going up, more people are willing to pay higher and higher amounts.

As interest rates rise and prices drop, investors see much safer forms of investing as being an option again. This amplifies falling property prices as investors dont want to take risks in assets when they can put their money to work risk free.

Rising rates reverses everything and falling prices amplifies the biggest factor in markets, sentiment. When prices are dropping people are much more careful and stop buying.

Timing belt

https://www.boards.ie/discussion/comment/119643396#Comment_119643396

What safer asset do you see investors shifting to?

==> Cash looses value due to inflation

==> bonds/debt loose value with interest rate hikes

==> Stock market I wouldn’t consider safer than property

Yes sentiment is a driver no one is arguing there but there are also fundamentals that underpin an asset value and see it trade within a certain price range.

jimmybobbyschweiz

https://www.boards.ie/discussion/comment/119638929#Comment_119638929

My you are getting very defensive and defiant as the sentiment on this thread shifts. Let me point back to the market sentiment graph and look at what happens around the denial stage.

My prediction is as follows and I will hang my hat on this;

- Last COVID restrictions end - give the economy a year to get back on its feet as the government supports will take some time to unwind.

- After a year, government supports will be gone and some of the cash savings and access to borrowing will be reduced for businesses so then the zombies will start to topple.

- After a year, COVID savings of individuals are down significantly and businesses start to wind up meaning the economy has shifted. The outlook is poor and the data comes through a couple of quarters later (Q3 2023) confirming what we all have sensed; a frail and declining economy with perhaps a technical recession (the real recession has already begun in 2022).

- With house prices the data lags the economic data. For example, transactions concluded months ago will only appear in transaction data today. Therefore, even though anecdotally late autumn and through winter 2022/2023 there are stories of a chilled market, we won't have transaction data for the period until Q2 2023, but the data confirming a decline in the market will be published in Q3/Q4 2023, Q1 2024, reflecting transactions concluded in spring and summer 2023. From there onwards I see the decline continue.

- The only qualification to the above is if the magic money printers go into overdrive again and rates drop significantly. If only there was some reason to do this (I won't say more on that but to note that previously I have said that the ECB are looking for any reason to keep the printers going full power).

awec

https://www.boards.ie/discussion/comment/119643396#Comment_119643396

How are these investors going to sell their properties if nobody is buying?

awec

https://www.boards.ie/discussion/comment/119643463#Comment_119643463

Sentiment on this thread shifts?! 😂

The sentiment of this thread, and all of it's predecessors, has been "this time next year you'll get a half price house" since about 2014. Dead cat bounces, bear markets, bull markets, asset bubbles, tax changes, Joe Biden, Donald Trump, OECD, China, the MNCs are all leaving, people are going to go work in Poland, we've had it all. The exact same posters have been banging this drum under their various guises for nearly a decade now. A few have been going even longer than that.

If the sentiment of this thread was ever anything other than abject doom I would fall off my chair. If it's set to rain next Wednesday you can be sure there'll be an explanation on here as to how this spells disaster for the property market.

Cyrus

https://www.boards.ie/discussion/comment/119643063#Comment_119643063

I love when a rereg comes back to predict the same thing they have been predicting for the past 5 years, warms the heart.

no one here has said prices can’t fall, you made that up while whipping yourself up into a frenzy.

Timing belt

https://www.boards.ie/discussion/comment/119643463#Comment_119643463

I’m not getting defensive or defiant lol… I’m just asking you to give a prediction which you have so thank you.

I haven’t be tracking the asking price for new houses have they stabilised or at least a slow down in price increases?

jimmybobbyschweiz

https://www.boards.ie/discussion/comment/119643483#Comment_119643483

The same problems persist in the underlying plumbing the last 20 years and lessons haven't been learned in Ireland. It has literally been government policy, the same party that has been in power the last decade, to throw good cash at the demand side of the property market in order to inflate prices. I, like others, are shocked at how this has still been possible but it makes perfect sense in an era of artificially and unsustainably low rates and easy borrowing - that era is now over so it's time to grab the popcorn as "growth" (relevant for debt:GDP borrowing servicing ability) is going to be lower and populism is stirring a once in a lifetime change in the Irish political scene with potentially neither FF nor FG in power in a government in the next two years.

jimmybobbyschweiz

https://www.boards.ie/discussion/comment/119643516#Comment_119643516

I don't unfortunately have that data to hand.

Another sort of side point to make along the lines of MNC activity stalling is in relation to the finance industry in Ireland; a huge employer of course but it is clear to me that, notwithstanding the labour shortage this year, it is a bloated sector and has thrived on the accommodative policies of the Western central banks. Ireland's regulator is a crumbling, underresourced entity that is driving business out of the country at a time when it should be making more of an effort to take on more investment activity. There is a massive liqudity mismatch in so many funds that our regulator has no insight on; as the central bankers' accommodative policies end, we will see these funds get shaken down, fees being reduced and slower new business, all pointing to a bit of a hit to the IFSC economic activity generated to the State. This will also hit demand for property as it materialises next year. Very quickly demand is there and then it isn't, so watch the MNC growth plans being shelved and our finance industry take a knock.

There'll definitely be demand for Revenue employees and insolvency experts though, for those looking for a career change!

RichardAnd

https://www.boards.ie/discussion/comment/119641662#Comment_119641662

Why do you think that the only way to reduce rents is to build more? Supply is but half of the problem. The elephant in the room is, and I know that this is controversial, immigration. Now, let me be clear that I have no issues with immigration, but we cannot pretend that there do not have more people than homes at the moment.

Ironically, it is often the immigrants themselves who suffer from largely uncapped immigration. I have good friends from Romania who are living in appalling accommodation, and they can find nothing else because it would seem that for every bed, there are plenty of potential occupants. These people came here trying to improve their lives, but the Irish state has funneled them into being rent cattle in what I would deem as modern tenements. I would also add that the people whom I know personally are very well read and educated souls who know precisely what is happening and why.

This is a major crisis, and it cannot be solved without honestly addressing all of the issues.

https://www.boards.ie/discussion/comment/119643740#Comment_119643740

And yet they stay, why?

It is easy to blame foreigners, but that is to ignore that for ten years the rate of Irish people emigrating has slowed due to improved employment prospects. There are also more Irish immigrants returning to live in Ireland than there are leaving.

https://www.cso.ie/en/releasesandpublications/ep/p-pme/populationandmigrationestimatesapril2021/mainresults/

Also, at the risk of pointing out the obvious, when you say there are more people than homes, that does suggest supply is not meeting demand. While none of us know for certain what the future holds, what we know today is that we have full employment, so there is capacity in the jobs sector for those people, there just aren’t enough homes to put downward pressure on rents.

IWW2900

https://www.boards.ie/discussion/comment/119643510#Comment_119643510

Weird statement, dont assume to know me.

I have been in property for 20 years. I only became bearish when it was clear we had big issues that needed big rate hikes.

Cyrus

https://www.boards.ie/discussion/comment/119643885#Comment_119643885

I don’t need to assume anything. Just read your posts.

Bass Reeves

https://www.boards.ie/discussion/comment/119643520#Comment_119643520

What cash has the government thrown at the building side.

The 30k tax rebate for HTB. It targeted at FTB it available to nobody else in the market. Shared equity scheme again FTB it's only available to with the exception of divorced people.

Do we remove these from the equation if we do will houses reduce in price by more than these are worth. I very much doubt it.

After that you have LA buying or renting properties for social housing. They have developed this method of procurement of social housing to prevent the getto's that were build in the 70's & 80's and the stigmitization that came with these.

In another post you stated that investors were supporting the market. Yet investors are exiting the market. The RTB is indicating that 3-4k units net are leaving the rental market every year and not being replaced. For how long will that continue and when it stops will these houses be replaced by new builds.

And we still have the elephant in the room of short term vacancy which is no longer being rented because of unbalanced regulations

jimmybobbyschweiz

https://www.boards.ie/discussion/comment/119644441#Comment_119644441

Yes, exactly, the money isn't been thrown at building (IE increasing supply) and is instead going to buyers and renters in order to push up prices.

The small landlords leaving is a direct aim of the FG government as it reduces supply and pushes up prices. Thousands leaving every year is not sustainable for the market and the anti-small landlord measures need to be undone - I don't think FG are in the business of helping the little man unfortunately.

https://www.boards.ie/discussion/comment/119644689#Comment_119644689

FG aim is to force LL out of the market? What are you basing that on? It would seem to be political hari kari to intentionally make the housing crisis worse. Reducing LA supports for renters may have the effect of lowering rents somewhat, and even make more units available to private renters, but it would be at the expense of those who have no hope of being able to pay the reduced private rental rate. No politician anywhere in the world would introduce policies aimed at throwing the poor out onto the street.

https://www.boards.ie/discussion/comment/119643202#Comment_119643202

Finally someone talking some sense...

https://www.boards.ie/discussion/comment/119644779#Comment_119644779

You should raise your threshold a little.

L1011

I may have to remind people that the tolerance for chicken licken posting, particularly that which moves goalposts and dates out constantly, is extremely low here.

Realistic discussion can be as pessimistic or optimistic as you want, but we've history of people giving their claimed reasons as to why the sky will fall in +3 months, for many months to years at a time, barracking those that disagree with them and disrupting everything

RichardAnd

https://www.boards.ie/discussion/comment/119643776#Comment_119643776

They stay because the money that they send home makes a difference, I suppose.

Let me be clear, I am not blaming foreigners. We have to separate the calling out of high immigration with xenophobia.

Villa05

More details on David McWilliam’s theory that high interest rates kills the investment fund business model. If what he says pans out it will certainly be another huge opportunity.

The state could buy back those apartments they have long term leased at fire sale prices. Need to be wary of being suckered into buying them before a firessale with the funds having former politicians and public servants on their payroll

https://play.acast.com/s/the-david-mcwilliams-podcast/with-interest-rates-going-up-housing-market-is-heading-down

Villa05

https://www.boards.ie/discussion/comment/119644779#Comment_119644779

There does appear to be a bit of denial and group think on rates

Of course demand exists, but most of that demand was priced out, rising rates and inflation plus stricter mortgage criteria is unlikely to help those priced out of raising the funds needed to buy

Will be interesting to see what shared ownership will do. From its initial proposal to implementation prices have risen to practically neutralise it as a tool to Stoke demand

timmyntc

In theory rate rises will increase mortgage rates which will decrease purchasing power for new houses. In practice we are not yet seeing that, for 3 reasons:

1) Irish mortgage rates are already well above EU average and ECB rates. So the last few ECB rate rises have barely impacted the cost of bank borrowing in Ireland for mortgages.

2) Irish banks hold massive deposits from customers - prior to the ECB rises (from negative rates) it was actually costing them money to hold all this capital deposits. That is no longer the case, so now Irish banks are operating a lower cost than when we had negative ECB rates.

3) Due to the large amount of deposits Irish banks hold, they can finance significant lending using these deposits and not having to borrow at the interbank rates, so again, cheaper finance from the bank POV.

So all these mean that Irish mortgage lending is shielded for now from ECB rate rises - we are not seeing a significant decrease in purchasing power yet.

timmyntc

The idea that rate rises make rental yields less appealing is valid, however keep in mind that Irish rental yields are above 3% for a lot of apartment complexes - this is still very attractive for funds. It will take significant rate rises for Irish rental yields to be viewed as unattractive.

Can the ECB (or EU members) sustain the kind of rate increases necessary to make Irish rentals an unappealing prospect for investors? I doubt it.

jimmybobbyschweiz

https://www.boards.ie/discussion/comment/119644703#Comment_119644703

What am I basing that on? Really? They have been in power for a decade and have introduced the measures which have resulted in swathes of small landlords leaving. It is as simple as that and I don't understand how you could question whether FG introduced the measures which resulted in small landlords getting shafted.

Personally, I believe they did this as the institutionals had their ear far too often and had too much influence on the policies that worked against small landlords.

jimmybobbyschweiz

https://www.boards.ie/discussion/comment/119644967#Comment_119644967

Their is a risk premium though on rental yields that isn't there with bonds. So yields don't need to drop to the level of bond yields, the gap just needs to be less than the risk premium to make bonds more attractive!

RichardAnd

https://www.boards.ie/discussion/comment/119644889#Comment_119644889

McWilliam's always struck me as a bit of a charlatan who says the right things to get an audience.

However, I agree with you that that if a firesale on former investment fund property were to take place, the state would almost certainly sign the taxpayer up to buying the assets at top rate prices.

If it were not obvious before, it should be be now; there's a club, and we ain't in it.

Villa05

https://www.boards.ie/discussion/comment/119644967#Comment_119644967

Alot of these funds are American. They have lost significantly on the euro collapse against dollar and yesterday you could get 4% from the US treasury on a 2 year bond

Villa05

https://www.boards.ie/discussion/comment/119644441#Comment_119644441

They have developed this method of procurement of social housing to prevent the getto's that were build in the 70's & 80's and the stigmitization that came with these

Again ghettos were never built in Ireland. The evolved into ghettos through poor policy, notably in 1984 council House residents were offered a 5,000 pound grant to purchase their own home if they surrendered their tenancy.

This was the single biggest factor in the ghettoisation of council estates, nowhere was that more evident in our own home city

5k was a huge sum of money to help buy a home in 1984. If I'm not mistaken 20k would have purchased a house back then

Had they instead offered the tennant to purchase there existing tenancy at replacement cost. These estates may not have suffered the fate that awaited them.

Timing belt

https://www.boards.ie/discussion/comment/119645077#Comment_119645077

Bonds aren’t risk free…especially in an inflationary period. Even government bonds which are deemed the safest are at risk of loosing value as rates rise.

Let’s not forget that bonds have an inverse relationship with yields. To mitigate against the risk you need an IRD or asset swap which dramatically reduces the overall yield.

looking at the yield on bonds and comparing against property yields is only relevant if you assume no more rate rises and are willing to take the risk if not you need to hedge and include the cost of that.